In what could be considered a show of confidence in and bullish outlook on the market, investors pushed the benchmark index higher to end on its 19th all-time closing high last Friday at 7,861.33. The previous record close was on Wednesday at 7,847.83.
The market posted an unusual three-digit net weekly advance of 130.76 points or 1.69 percent. This was only the third time it happened since the start of the year. The first time was on the week of Jan. 5 to 9, when the market closed with a net gain for the week of 172.15 points or 2.38 percent. The second time was the week of Jan. 26 to 30, when the market made a net gain of 140.98 points or 1.87 percent.
Since then, the market was limited to a low two-digit weekly advance. It advanced by 38.27points or 0.50 percent on the first week of February. In the following two weeks, the market posted net gains of 45.27 points or 1.29 percent and 51.94 points or 0.67 percent, respectively.
Unlike how it ended in January, the market tanked in the last week of February, when it closed with a loss of 94.82 points or 1.21 percent for the week.
No matter how small it was, however, the market still ended with a net gain for the month of 40.66 points or 0.53 percent.
Critical events
The market’s strong advance last week was unexpected considering how it performed in February. It barely moved as described in the foregoing explanations unlike in January when net total gain for the month hit 459.34 points or 6.35 percent.
The market’s unexpected advance was without a good reason. The market was treated with a new positive lead, something that it never had for so long. In particular, investors reacted positively on last Friday’s news that February inflation slightly increased to 2.5 percent from 2.4 percent in January but was significantly lower than the 4.1 percent in the same period last year.
With what happened on Wall Street last Friday, when positive leads did not translate into market gains, we may see our market not reacting favorably on every positive lead. Aside from its present vulnerability to technical correction owing to its overbought situation, the market may be overshadowed by concomitant negative events.
Investors in Wall Street sold instead of buy more on good news last Friday. The Dow plunged 278.90 points to 17,856.78; the Nasdaq by 55.44 points at 4,927.37 and the S&P 500 by 29.98 points to 2,071.26.
The US Bureau of Labor and Statistics reported that the US economy added 295,000 new jobs in February, beating economists’ forecasts of 240,000. This meant, according to the report, that unemployment rate fell to 5.5 percent from 5.7 percent in January.
Investors now felt that the strong trend in the jobs market might speed up the timetable of the Federal Reserve to increase interest rates—a critical event seen to be negative for the US equities market.
Despite the local market’s favorable status, it might not also be able to totally shrug off the negative impacts of certain critical events in foreign markets now.
There are about five critical events we should watch out for, according to economists Nouriel Roubini and partners, Aon Risk Solutions. These are Russia, the price of oil and some major commodities, conflict and violence in the Middle East and North Africa, and interest rates.
According to the research, the twin impact of low oil prices and international sanctions on Russia due to its involvement in the Ukraine conflict are taking their toll on the Russian economy. Since the conflict in Ukraine and the continued sanctions are unlikely to end soon, Russia’s instability will “continue to cast a shadow over the region.”
Russia, Venezuela and Iran have also been hurting from the oil glut and low commodity prices. They now face weaker income. Because of it, their currencies and capital policy weakened, making them vulnerable to trade shocks.
At the receiving end and at risk now, being trading partners of Russia, are the economies of Belarus, Kazakhstan, Uzbekistan and Turkmenistan. Angola, Cameroon, Congo and Nigeria, which are dependent on mining and energy products, face a similar fate.
On the subject of interest rates, the research suggested that even a modest increase by the Federal Reserve could lead to “intense global competition for capital that would make it costlier to service external debt.”
On the matter of conflict and violence, “the horrors of the Islamic state in Syria and Iraq, and Boko Haram in Nigeria, top them all. They are serious threats to regional stability. And due to the porous borders and immature civic institutions in parts of the Middle East and North Africa, they become particularly sensitive to violence.”
All these contribute to a chaotic world. Because “a vacuum has opened up” in Eastern Europe, the Middle East and North Africa, the research concluded that we would continue facing great geopolitical risks.
Bottom line spin
The market’s big advance last week was not exactly exceptional. The market’s gains were earned from a mild three-day advance from Monday to Wednesday, capped by another mild advance on Friday that effectively neutralized its loss of Thursday.
With more critical events to overcome, the market may not yet be ready to go forward soon. However, it is also possible for the market to make one more spike before the start of the Holy week.
By the way, Metro Pacific Investments Corp. was the top loser among last Friday’s active stocks. It slipped 3.77 percent due to the conflict between its unit, Maynilad, and Metropolitan Waterworks and Sewerage System (MWSS) in connection with a water rate increase.
Maynilad has won an arbitration case against MWSS, which effectively overturned the latter’s rejection of Maynilad’s rate hike application. The award, however, has yet to be implemented.
Like MPC, the market’s long-term direction remains on the upside.
(The writer is a licensed stockbroker of Eagle Equities Inc. You may reach Market Rider at marketrider@inquirer.com.ph , densomera@msn.com or at www.kapitaltek.com)